George Leong: In spite of some doom and gloom scenarios for the housing market, so far it has been full steam ahead as the sector continues to blaze along since bouncing out of the Great Recession in 2008.
With interest rates and mortgage rates continuing to be relatively low, and with the jobs market producing more than 200,000 new jobs monthly, the ingredients are there for continued strength in the housing market, which I view as a good buying opportunity.
Yes, while it’s true much of the easy money has been made in the housing market, there are still opportunities to squeeze some profits out from homebuilder stocks.
Housing starts and building permits continue to be fairly strong with more than one billion annualized units for each segment in July.
As I previously said, the low rate environment and jobs growth will continue to provide the catalyst for growing the housing market. And I expect this to hold for at least another year or so until rates move higher to levels that will hurt the housing market.
One of the top housing market stocks is Toll Brothers, Inc. (NYSE:TOL), which just produced an impressive fiscal third quarter (ended July 31) in which revenues grew at 53% year-over-year to $1.06 billion. The company delivered 1,444 units at an average of $732,000. Toll also drove earnings up 110%, more than double the prior year’s same quarter.
The company ended with a strong backlog of $3.1 billion and 4,204 units at an average of $737,000. Currently trading at 15.56X its FY16 earnings per share (EPS) and a price-to-earnings growth (PEG) ratio of 0.42, the shares have some more upside left.
Chart courtesy of www.StockCharts.com
Alternatively, current homeowners will likely take advantage of the low interest rates to renovate their homes. If you are looking for a building supplies company, the “Best of Breed” continues to be The Home Depot, Inc. (NYSE:HD), which recently shattered Street estimates.